Should You Use Ontex Group's (EBR:ONTEX) Statutory Earnings To Analyse It?

As a general rule, we think profitable companies are less risky than companies that lose money. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. Today we'll focus on whether this year's statutory profits are a good guide to understanding Ontex Group (EBR:ONTEX).

While Ontex Group was able to generate revenue of €2.22b in the last twelve months, we think its profit result of €70.0m was more important. As you can see below, its profit has actually declined over the last three years, even though its revenue was flat.

View our latest analysis for Ontex Group

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Ontex Group's statutory earnings. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Ontex Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €42m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Ontex Group to produce a higher profit next year, all else being equal.

Our Take On Ontex Group's Profit Performance

Unusual items (expenses) detracted from Ontex Group's earnings over the last year, but we might see an improvement next year. Because of this, we think Ontex Group's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 28% over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Ontex Group at this point in time. Case in point: We've spotted 2 warning signs for Ontex Group you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Ontex Group's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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